Next step for the infotech boom

Source- The post is based on the article “Next step for the infotech boom” published in the “Business Standard” on 25th April 2023.

Syllabus: GS 3 – Indian Economy

News– The article explains the growth of infotech industry in India

What are major reflections from the present status of the infotech industry in India?

The long-term vision of science and technology development in the Nehru era of planning created a capacity to keep track of technology developments.

The rapid expansion of engineering education became the basis for India’s global comparative advantage in medium-skill service supply.

What was the policy focus of the government in the 70s and its impacts?

The policy focus in the 1970s shifted on public sector companies to manufacture hardware for defence, space and atomic energy, as a part of the self-sufficiency strategy.

The public enterprises developed the skills required for specific needs, mainly for governmental applications. It had a limited impact on the economy. The high tariffs on hardware imports constrained the development of the service industry.

How did the policy focus of the government after 80s change the status of the infotech industry in India?

The change made in the mid-1980s in the infotech service industry has an economy-wide impact. The new policies announced by the Rajiv Gandhi-led government in 1984.

The tariffs on hardware imports were substantially reduced and software technology parks were established. They provided satellite links to major IT developers, and enabled them to directly transmit the work done in India abroad.

What are the other factors responsible for growth of the infotech industry in India?

The big change occurred towards the end of the last century. Computer programmes designed with two-digit year numbers had to be modified in a time-consuming process to take four digit year numbers.

The Indian software service companies could do this at low cost because of their low worker wages levels.

Software exports from India increased nearly 2.5 times in dollar terms between 1998–1999 and 2000–2001

Another change that generated new options for the Indian software service firms was the establishment of the euro currency. It required similar tedious changes in computer programs.

Since then, the India software service industry has become a key global player in the trade in software services and internet technology-enabled services. Its annual exports have grown from around $3 billion in FY2000 to $181 billion in FY2022.

What is the way forward for future growth of the infotech industry in India?

A greater presence on the frontiers of infotech development and better integration into the needs of the national economy will decide the future of IT industry

The industry is a major global player but not yet a major innovator. The R&D spending of the major companies is about 1% of turnover. It is way below the levels for global internet players not just in the developed world but also in China.

With artificial intelligence (AI), India’s cost advantage in low-cost services will be eroded unless it itself becomes a major player in AI and other new technology developments.

This will require substantially greater investment in R&D by both the government as well as infotech companies.

There are other areas that are becoming more important, like cloud computing. Most users in India are dependent on foreign suppliers of cloud services.

It is also necessary that the infotech service industry increases its focus on domestic sales, which at present are just a little above 20% of their turnover.

The potential and the need for domestic sales will increase with the development of an open access digital framework by the government, with assistance and cooperation with private sector software pioneers

This digital public network includes Aadhaar, the Unified Payments Interface (UPI), and new developments like the Open Credit Enablement Network (OCEN) and the Open Network for Digital Commerce (ONDC).

Access to digital frameworks has shot up with the growing number of smartphone and internet users and bank deposit holders.

The infotech service companies must now see themselves as a major domestic supplier of services and not just as globally competitive exporters.